Fourth quarter profit at Wachovia Corp. fell 98 percent to $51 million ($.03 per share), versus $1.6 billion one quarter earlier and $2.3 billion one year earlier, as the nation's fourth largest bank was socked by mortgage-related charges. Bloomberg reported that Wachovia's earnings missed analysts estimates badly, who had been expecting earnings of $.33 per share for the quarter. "The continued turmoil in the capital markets and the dramatic change in the credit environment diminished our fourth quarter results substantially,� said Ken Thompson, Wachovia chairman and chief executive officer. Wachovia wrote down $1.6 billion in its investment holdings, including $1.0 billion in subprime RMBS and CDOs and $600 million in CMBS and related securities. Golden West is in there, somewhere Wachovia -- which owns option ARM specialist Golden West Financial -- booked a $1.5 billion provision for credit losses during the fourth quarter, against net charge-off activity of $468 million. Provision charges were up substantially from $408 million booked in the third quarter and $206 million in the year-ago period, with the bank citing "significant deterioration in the residential housing market and the related portions of the commercial real estate portfolio." Non-performing assets reached $5.2 billion during Q4, or 1.08 percent of loans; NPAs represented 0.63 percent of loans in the third quarter, and just 0.32 percent one year earlier. Looking at loss coverage ratios, the allowance for loan losses as a percentage of loans increased to nearly 1 percent during Q4, up from 0.78 one year earlier. However, Q4 represents a sea change in terms of reserving credit losses, in spite of the hike in reserves -- NPAs as a percentage of loans (1.08 percent) now exceed the loss coverage ratio (0.98), meaning there are now more non-performing assets than there are reserves set against them. Wachovia's exposure to negatively-amortizing loans, acquired in the Golden West purchase, are clearly a problem. So-called "pick a payment" loans represented $119.6 billion of the bank's mortgage portfolio at year's end, by far the largest segment of the bank's mortgage loan holdings. Among these loans, $2.76 billion -- or 2.31 percent -- were classified as non-performing during Q4; Wachovia has seen NPAs in this loan category increase by $1 billion within one quarter. Nonetheless, Wachovia's shares were trading up nearly 2 percent to $31.32 in Wall Street's morning session, as investors were buoyed by CEO Ken Thompson's assertion that the bank would likely not need to take an impairment charge on Golden West. "I just think there is a big misperception on the quality and the profitability of the business," Thompson is quoted by Rueters as saying a conference call. For more information, visit Disclosure: The author held no positions in WB when this post was originally published.